A judge's recent decision not to block implementation of the new credit union membership rule contained some discouraging words for the banking industry.

In her March 10 decision rejecting a request for a preliminary injunction of the National Credit Union Administration rule, U.S. District Court Judge Colleen Kollar-Kotelly showed little respect for the American Bankers Association's legal arguments.

"The field of membership criteria set forth in (the rule) is eminently reasonable," she wrote. "It would seem that the plaintiffs' concerns about the final rule stem more from their own myopic reading of (the rule) than from an inherent flaw in the regulation itself."

The judge went on to conclude that seven of the ABA's eight complaints were unlikely to succeed on the merits.

Had the ABA's injunction request succeeded, the NCUA would have been forced to stop letting credit unions expand until the lawsuit was resolved. The rule is based on the credit union law enacted in August.

Bank attorneys acknowledged that Judge Kollar-Kotelly's opinion largely favored the NCUA's position. But Michael F. Crotty, the ABA's deputy general counsel for litigation, said the judge misunderstood several key points and that the ABA's next legal brief would be clearer. "We were unsuccessful in explaining our points to her satisfaction," he said. "We won't be again."

Another banking lawyer familiar with the case said the ABA's next brief will be stronger because it will address two NCUA rules excluded from the first brief: the acceptable size of a community-based credit union and the eligibility of a credit union member's family.

The lawyer also pointed out that in the AT&T Family Federal Credit Union case, the ABA lost in U.S. District Court but won on appeal and was victorious at the Supreme Court.

The Justice Department and the NCUA have until April 8 to make their next move. They are expected to ask the judge to render an opinion without a trial.

Meanwhile, credit union sources crowed over the ruling.

"It would appear from the judge's decision that she intends to support us, not only preliminarily but on the merits when the permanent injunction comes up for consideration," NCUA Chairman Norman E. D'Amours said in an interview Tuesday.

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